ESG Activities Aid Organizational Performance and Risk Management

Environmental, social, and governance activities may help drive better financial performance and improve risk management.

NYU Stern Center for Sustainable Business, partnering with Rockefeller Asset Management, conducted a meta-study examining the relationship between ESG activities at organizations and their financial performance in more than 1,000 research papers over the last five years, Environment + Energy Leader reports.

“We’ve seen an exponential increase in ESG and impact investing as evidence builds that business strategy focused on material ESG issues goes hand-in-hand with high-quality management teams and improved returns,” Professor Tensie Whelan, Founding Director of NYU Stern’s Center for Sustainable Business, said.

The researchers detailed six key takeaways:

  1. Improved financial performance due to ESG becomes more noticeable over longer time horizons.
  2. ESG integration as an investment strategy performs better than negative screening approaches.
  3. ESG investing provides downside protection, especially during a social or economic crisis.
  4. Sustainability initiatives at corporations appear to drive better financial performance due to mediating factors such as improved risk management and more innovation.
  5. Managing for a low-carbon future improves financial performance.
  6. ESG disclosure without an accompanying strategy does not drive financial performance.

The authors discovered a positive correlation between ESG and financial performance in 58% of the corporate studies based on operational metrics or stock price, with 13% showing neutral impact, 21% mixed results, and 8% revealing a negative relationship.

On an investment basis with a focus on risk-adjusted attributes, 59% of results showed similar or improved performance relative to conventional investments, while only 14% exhibited negative results.

“Our analysis demonstrates the benefits of incorporating ESG information into an investment process for long-term investors managing through varying economic cycles toward a low-carbon future. This has been a valuable and insightful collaboration with NYU Stern’s Center for Sustainable Business,” NYU Stern alumnus Casey Clark, Managing Director, Global Head of ESG Investments & Portfolio Manager at Rockefeller Asset Management, said. “I believe that research in the years ahead will increasingly focus on the risk and return relationship between ESG leaders, ESG improvers and thematic strategies. That is the future of sustainable investing.”

For more news, information, and strategy, visit the ESG Channel.